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 / Winter 2005 / Issue 41(originally published by Booz & Company)


Flying Blind

Some of those reasons relate to the pace and direction of technological change itself. Complex innovations may have one or two core technologies, but they typically also incorporate many other supporting or complementary technologies. Advances in the core technologies may make a new product feasible — and excite inventors, investors, and managers — but shortcomings in the supporting technologies may undermine the product’s commercial viability. Breakthroughs in engine power and aerodynamics, for example, enabled engineers to build the Concorde, but deficiencies in materials science rendered it unprofitable to fly. Because of the unavailability of lightweight materials, the plane was able to carry only a relatively small number of passengers, and it had to burn a huge amount of fuel. Air France and British Airways simply couldn’t charge enough to cover their costs. With most flights, they just burned money.

Technological advances also tend to produce backlashes, which can be hard for those caught up in the excitement of invention to understand or foresee. That’s why the members of the Concorde team were blindsided by the environmental concerns that played a key role in limiting the plane’s routes. If they had anticipated the protests, they might have been able to blunt their impact through aggressive education and public-relations programs. The noise fears, for example, turned out to be exaggerated, but the perception that the Concorde would disturb local communities lingered.

The failure of innovations can also often be traced to the misreading of market dynamics. When an attractive new technology is introduced, customers tend to be hungry for rapid advances in its performance — and they’re willing to pay extra for every new generation. But at some point, and it is often sooner than most experts expect, the demand for better performance at any price begins to flag. The product’s capabilities become satisfactory to a majority of buyers, and they lose their interest in spending more for better features. They’d rather get the same level of performance for less money. When the Concorde was on the drawing board, it seemed obvious that customers would gladly pay more for faster flights — after all, that had always been the case in the past — but by the time the plane was actually airborne, the market was paying more attention to price than performance. As the Concorde’s makers discovered, market research can be blind to such a sea change in customer behavior.

Finally, and perhaps most deadly of all, innovations can fail because of cognitive biases — flaws in the way people think as they create and try to sell breakthrough technologies and products. In a series of famous psychological experiments, Nobel laureate Daniel Kahneman and his late colleague Amos Tversky showed that people are naturally prone to both overconfidence and overoptimism. We overestimate our ability to do hard things, and we underestimate the hazards and difficulties involved. It’s this aspect of human nature that produces the risk-loving dreamers like Louis Blériot who push the world forward. But it’s also what seals the fate of many well-intentioned innovation initiatives. Wanting to believe the best, of themselves and their organizations, businesspeople routinely underestimate the costs of complex initiatives, failing to take into account the inevitable delays, failures, and conflicts that waste time and money.

When Britain and France agreed to jointly build the Concorde in 1962, they projected the total cost would run around £160 million. Ten years later, they’d spent well over £1 billion. The team didn’t even factor inflation into their original cost estimates, an oversight that, given the hyperinflation of the 1970s, proved particularly damaging. Innovators and their financiers need to remember that, when it comes to commercial products, clear thinking about costs is as important as clear thinking about sales. Revenues are worth little if they’re overwhelmed by expenses. (As the cover story of this issue suggests, many companies are already facing this problem. See “Money Isn’t Everything,” by Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia, s+b, Winter 2005.)

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